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Does Community Property Mean “50/50″?

MyFamilyLaw Admin — Wed, 09 Sep 2009 12:28:18 +0000

The Basic Rules for Dividing Community Property

Community property is a term used to describe property and assets acquired after the marriage. Currently, there are nine community property states.

In addition, Puerto Rico operates under a community property doctrine and Alaska allows couples to choose to designate specific items as community property.

So, what does all this mean when you divorce? Does “community property” mean a 50/50 split?

In general terms, yes. During the property distribution process in a community property state, the court will attempt to divide the property as equally as possible between the two parties. This distribution is usually done using monetary values so that if the divorcing couple came in with $100,000 in assets, each should leave with approximately 50% or $50,000.

Of course, splitting up the assets isn’t always easy since they often include the family home, retirement accounts, art collections and other items that can’t just be split down the middle.

In this case, the court typically has a few options: the items can be sold or cashed in and the proceeds split between the parties; the items can be awarded in whole to one party with something of near equal value going to the other (Mary gets the family home and John gets the art collection and retirement account); or the parties can agree to an unequal split to preserve the items in question.

There are however, a number of variations to these rules since no two community property states work the same. Some states for example, require that all property be split right down the middle while others leave the split to the discretion of the court which can result in an uneven distribution of property.

In addition, while most states treat income from separate property as separate, Idaho, Louisiana, Texas and Wisconsin do not. In these states, any income from separate property would be considered as community property and subject to the normal property distribution laws of your state.

But perhaps the most difficult task in property distribution is determining where separate property ends and community property begins. Its not uncommon for couples to convert or invest separate property into community property at some point during the marriage. This can occur for a number of reasons, including everything from buying a new home to paying off community debt.

Again, handling such property will depend upon the laws of your state but as a general rule, the more commingled the funds, the harder it will be to distinguish separate property from community property.

What is Marital and Non-Marital Property?

MyFamilyLaw Admin — Wed, 09 Sep 2009 12:25:13 +0000

Understanding the Financial Aspects of Marriage and Divorce

Marital property is essentially all property and assets that were acquired during the marriage , otherwise known as “community property “.

In general, all property is presumed to be marital property unless an exception is established. These exceptions include:

Property that was owned by one of the spouses prior to the marriage
Property that is acquired as a gift or through inheritance
Property that is designated as non-marital property in a prenuptial agreement or other legal instrument signed by both parties
Property acquired after a legal separation

Property falling into one of the categories above would likely be deemed as non-marital or “separate” property and is not subject to the distribution process during a divorce.

However, distinguishing between marital and non-marital property can get quite tricky.

Marital property that is acquired by converting non-marital property now has a community interest and is subject to the normal property distribution process. A marital home for example, that is purchased with proceeds from selling non-marital stock becomes part of the marital assets. Furthermore, once the home is purchased, any improvements and additions to the home are typically made with marital funds – that is, income earned after the marriage and thus considered as community property.

To preserve the non-marital interest, the spouse must be able to clearly track the non-marital funds through receipts, bank statements, etc. But the more the non-marital property is “comingled” with the marital property, the more difficult it becomes to separate the two.

Non-marital funds deposited in a joint bank account for example would be difficult to trace since both parties are making deposits and withdrawals from the account. At some point, the initial non-marital deposit is absorbed into the marital funds and without a legal agreement between the parties acknowledging the separate property, it is likely that the account will be treated as community or marital property, regardless of who deposited what.

To protect your non-marital property, it is important to keep it separated from the community assets. A separate bank account for example, will distinguish that inheritance money from marital funds. Just remember that any income you earn during the marriage from normal wages and the like is considered to be marital property. Depositing these funds into your separate account would still be considered comingling funds, even though the money was earned by you.

Property Acquired After A Separation

MyFamilyLaw Admin — Wed, 09 Sep 2009 12:20:37 +0000

Dealing With Property Distribution During A Separation

Property distribution is one of the most complicated aspects of a divorce , requiring the court to distinguish between marital or “community” property and property that is “separate” or held by one party only.

When parties legally separate , they are in effect establishing themselves as “living separate and apart”. Many states will address property distribution in a legal separation agreement that can then be converted into a divorce decree at a later time.

In these instances, most states agree that any property acquired after a legal separation but before the divorce would still be considered separate, however there are some exceptions to this rule.

If the parties are not legally separate for example, meaning that no official document has been filed with the court, then property acquired after the separation could be claimed as community property during the divorce proceedings.

Likewise, if the parties are not living “separate and apart”, it would be difficult to claim an item as separate when it was technically acquired while the parties were still together. The final determination would of course, be up to the court.

Also, some states do not provide for a “legal separation” in court, so it would be up to the parties to document their separation. Depending upon the laws of your state , this may or may not protect property acquired after the separation.

The way that the property was acquired is another consideration to this particular issue. If for example, income or earnings were paid from a retirement account that would be classified as community property, then the income is also considered community property, even though it was earned after the separation. Similarly, if an item is acquired by converting clearly established separate property, then the new property would remain separate, regardless of when it was acquired.

Remember, each state deals with property distribution differently so you should study the laws of your state to learn more about distinguishing separate property from marital assets.

Can Separate Property Become Community Property?

MyFamilyLaw Admin — Tue, 08 Sep 2009 09:45:35 +0000

Commingling: Mixing “Mine” With “Ours”

Separate property includes assets, both real and personal, that were either owned by one spouse prior to the marriage or were acquired through an inheritance, as a gift or purchased with funds that are separate property.

Separate property can however, become community property (property equally owned by both spouses) through a process called “commingling.” This happens when separate property is mixed or “commingled” with community property. If, for example, a spouse deposits his inheritance into a joint bank account where both spouses make withdrawals and deposits, the inheritance could at some point be considered “commingled” and part of the marital assets.

In order for a court to distinguish separate property from community property, you would have to be able to show a clear paper trail that tracks the property back to the point it was considered separate, such as deposit slips or other documents that identify the property. Even then, if the property is liquid, it is impossible to differentiate between funds which were initially separate property and marital funds – especially after multiple deposits, withdrawals and market gains or losses are considered.

You could also retain your rights to your separate property through a pre- or post-nuptial agreement . If for example, you used your inheritance to make a down payment on the family home, you and your spouse could agree in a written agreement that the down payment money was your separate property and in the event of a divorce, you would be reimbursed for the down payment.

Debts: Husbands and Wives

MyFamilyLaw Admin — Tue, 08 Sep 2009 07:27:59 +0000

Your Debt Related Responsibilities As A Spouse

When you’re single and you assume a debt such as a loan or credit card, that debt belongs to you and no one else.

But what happens when you’re married?

In general, you are always responsible for any debt you co-signed for. Married couples frequently open joint credit card accounts, sign mortgages and buy cars together, with both the husband and wife signing the applications and other necessary forms. This would make both parties equally responsible for the debt, even if they did not equally share in the benefits.

For example, if a couple purchases a car together but only the wife drives it, the husband still shares in the responsibility for the debt. Likewise, if both parties open a credit card together but only the husband uses it, the wife is still legally liable for the debt.

In some states, the law also requires both spouses to be responsible for debts incurred in support of the family’s household. Often referred to as the “family expense statute”, these laws require that the husband and the wife equally share in debts such as doctor bills and charges for groceries, electricity and the like. Many states also impose this kind of inferred responsibility, even if a statute is not in place.

States that have community property laws in place often hold both parties responsible for each other’s debts created during the marriage , regardless of whether both signed on the account.

As a general rule, any debts created prior to the marriage are not typically treated as a shared debt between spouses however, there are a few exceptions. Some states allow certain debts to collect against marital property, even if the spouse was not technically responsible for the debt. That means that a judgment or lien could be placed against property and/or assets owned by both parties to satisfy a debt incurred by one of the spouses prior to marriage.

Community Property vs. Separate Property

MyFamilyLaw Admin — Sun, 06 Sep 2009 05:26:24 +0000

What’s Ours? What’s Mine?

One of the most difficult aspects of divorce is deciding who gets what. In the absence of a prenuptial agreement, state laws govern how property and assets are split between the two parties. Depending upon your state’s laws, you may get more or less than you think you deserve.

Property Basics

Property can be divided into two categories: community and separate (sometimes also called “personal property”).

Community property is generally anything that was acquired after marriage. This can include the house you bought, cars, furniture, artwork, collectibles and even income that was earned during the marriage.

Separate property on the other hand, is generally anything that was acquired prior to the marriage. Separate property can also include items or money received as an inheritance (even after the marriage) as well as any property acquired after a legal separation.

Commingling

The problem with allowing the state to distinguish between separate and community property is that the two often become mixed during the marriage, a process known as “commingling.”

Let’s say for example, that you entered into a marriage with a hefty savings account. You then opened a joint checking account with your spouse and transferred some of your separate savings into the new account. Both of you used this account exclusively, making withdrawls and deposits on a regular basis. In the event of a divorce, it would be difficult to distinguish your original savings from the existing balance in the account because you have blended your money with that of your spouse, treating it as community property.

To avoid this situation, you’ll want to take extra care to document any separate property that is used in a community property manner. If the funds from the savings account were used to purchase a particular item for example, the receipts could be used to trace the money back to the separate account. [more about commingling...]

Debts

Like assets and income, debts can also be categorized as separate or community property. A credit card account that was opened jointly during the marriage for example is considered to be community property and both parties are responsible for its repayment.

On the other hand, a debt that was assumed prior to the marriage or after a legal separation would be considered separate property and the account holder bears the responsibility for repayment.

Future Income

In addition to money earned during the marriage, your retirement benefits are also considered to be community property. That means if you’re sitting on an impressive 401(k), your spouse may have the right to a portion of these funds.

This right can often be waived in a prenuptial agreement or provided for in some other fashion. In the event that there’s no prenup, the judge will address the issue in one of two ways: a division of the account or a waiver from the spouse.

If the account is to be divided, it can be done through a buyout or the account can be split into two separate accounts. A buyout is a situation in which the account’s owner pays his/her spouse a certain amount, either through a property trade or cash payment. If the account is to be split, a certain sum will be transferred into a new account in the name of the recipient spouse.

Social security payments and worker’s compensation payments are not considered community property.

“Community property states”

States that have community property laws treat income during marriage differently than other states. Special rules apply to spousal property and income in the community property states:

You should always consult with an attorney to learn more about how property laws in your state will affect you.